Sabre Corp (SABR) 2016 Q3 法說會逐字稿

Good morning and welcome to the Sabre third-quarter 2016 earnings conference call. Please note that today's call is being recorded and is also being broadcast live over the internet on the Sabre corporate website. This broadcast is the property of Sabre. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent of the Company is strictly prohibited. I will now turn the call over to the Senior Vice President of Investor Relations, Mr. Barry Sievert. Please go ahead, sir

Thank you Tracy and good morning everyone. Thanks for joining us for our third-quarter 2016 earnings call. This morning we issued an earnings release which is available on our website at investors.sabre.com. The slide presentation which accompanies today's prepared remarks is also available during the call on the Sabre IR webpage. A replay of today's call along with the slide presentation will be available on our website beginning this afternoon.

Throughout today's call we will be presenting certain non-GAAP financial measures which have been adjusted to exclude expenses or other gains or losses related to restructurings, litigation and tax matters and certain other items. All references during today's call to EBITDA, operating income, EPS and net income have been adjusted for these items. The most directly comparable GAAP measures and reconciliations are available in earnings release and other documents posted on our website at investors.sabre.com.

We would like to advise you that our comments contain forward-looking statements. These statements include among others disclosure of our guidance, including revenue, EBITDA, net income, cash flow, CapEx and earnings. Our expected segment results, the effects of new or renewed agreements, products, implementations and acquisitions are expectations of industry trends and various other forward-looking statements regarding our business. These statements involve risks and uncertainties that may cause actual results to differ materially from the statements made on today's conference call. Information concerning the risks and uncertainties that could affect our financial results is contained in our SEC filings including our second-quarter 2016 Form 10-Q and our 2015 Form 10-K.

Participating with me on today's call are Tom Klein, our President and Chief Executive Officer; Rick Simonson, Executive Vice President and Chief Financial Officer; and Chris Nester, our Treasurer and SVP of Finance. Tom will start us off with a review of our strategic and commercial performance. Rick will then offer perspective on our financial results and forward outlook before turning the call back to Tom for closing remarks. We will open the call to your questions. With that, I will turn the call over to Tom,

Thanks Barry. Good morning everyone. Thanks for joining us. In the third quarter, we continued to build on our track record of delivering innovation. That said, we didn't deliver the kind of overall financial results we or you have come to expect from Sabre. There were three reasons for this. We had continued corporate booking weakness in two of our major markets, North America and Europe.

Counting for the insolvency of Unister, a major European OTA, we had business with Unister for several years and we had seen benefits from the growth in there for many quarters and it ended with unfortunate events that set off the company's demise. And third, we spent money above planned amounts as we worked to adjust our customer's needs including incremental spend on the technical security and stability of our network and from delays in restructuring of a couple of our airline reservation implementations. More on how we benefited from this work later in periods to come.

But here is why I expect the fourth-quarter to return to the kind of strong results we've delivered since our IPO and that are consistent with our expectations. First, at travel network, bookings are showing improvement in October. A number of airlines and agencies have also reported measurable pickup in corporate bookings in key markets, so it's reasonable to expect that we are on an improving trajectory.

Second, we had terrific visibility into agency conversions and resulting booking pickup specifically in EMEA in fourth quarter. This will support our return to market-share gains in EMEA. And finally, solution strength will continue with reaching successful Sabre-sonic implementation (inaudible) in accelerated wind and rollouts and double-digit growth in airline solutions, AirCentre and AirVision product suites. A solid fourth quarter will set up the drivers for a good 2017.

We have clarity on the airline reservations implementations we expect in 2017 while we'll continue to work to sell additional solutions for these and all of our airline customers. Our hospitality business continues its rapid growth across independent, small and medium-sized and enterprise chain hotel groups. We expect the announcement of one or more new enterprise clients before our next quarterly call, further setting the stage for 2017 and beyond.

We expect 2016 will show we again gained global share in Travel Network. Going into 2017 we have already won the biggest share of one of the world's largest travel retailers with bookings starting to flow in the second half of 2017. And our recent commercial successes further bolster our confidence.

Let me turn back to the third quarter. While there's reason for optimism going forward, as I said the results in the third quarter didn't meet our expectation and we're not satisfied with our overall performance.

Moving quickly to recap our business performance in the third quarter. Our Solutions business delivered 20% topline growth that accelerated from the first half with a balanced contribution across the business. Travel Network increased share on both a year-over-year and sequential basis and delivering bookings growth in all regions.

On a consolidated basis, revenues were impacted by modestly slower growth and a write-off of related to the Unister insolvency. Excluding the insolvency, EBITDA would have increased 2% and EPS would be consistent with year-ago results.

During the quarter, we also incurred higher technology operating and investment expenses than we'd planned, as I mentioned earlier. Our continued investment, new sales and current travel agency implementations in the quarter will benefit us in the fourth quarter in near future. As I said all year, we expect strong topline growth and margin performance in the fourth quarter and we're seeing some signs of that as we speak setting up for a solid step-off into 2017.

In the airline and hospitality solutions business, we continue to expand our share of wallet to current customers and gain new ones across all of our solutions. Revenue growth at 20% included 20% growth in Sabre-sonic, mid-teens growth in AirVision and AirCentre and nearly 45% growth in hospitality solutions.

Marketplace momentum for our new solutions continues to be robust. In the third quarter, JetBlue and Japan Airlines contracted for crew manager bringing the total to seven airlines that have signed so far this year after releasing our new crew product. Additionally our team already signed seven airlines in advance of our late October launch of our revenue manager product, Revenue Optimizer.

These first-mover customers demonstrate that we hit the mark with these new solutions. Our innovations, our focus on the future needs of the airline industry and our customers are validating that those are innovations are resonating. Our track record of delivering measurable value for our customers, is driving increasing value, share of wallet and broad revenue contribution across AirVision and AirCentre.

A few examples of the third quarter -- in the third quarter include new implementations at Indonesia's line air group with Schedule Manager and India's Jet Airways with Intelligence Exchange in our interline branded-fare solution and Aeromexico on our digital experience solution. These implementations are contributing to the balanced growth I mentioned earlier.

Two weeks ago Alitalia implemented the SabreSonic reservation suite, part of a broader adoption of SabreSonic technology across the airline which includes Intelligent Exchange, cloud availability and our digital experience suite that are all live today. Alitalia brings nearly 25 million annual passengers boarded through the SabreSonic platform. And just this past weekend, American Airlines implemented the SabreSonic inventory which is the next big step into moving American to a broader suite of SabreSonic solutions.

We have been working with Air Berlin on a significant and necessary restructuring on the airline where Sabre technology as an important enabler of their future success. As a result of restructuring, we've adjusted our contract and the implementation of SabreSonic at Air Berlin will now happen in 2017. In the meantime we'll implement other solutions with them and we expect full-year overall economics will be largely the same.

Copa is an airline that had a very strong recovery after a difficult period due to several factors including the Venezuelan collapse. Copa made a decision to reorder some of their technology products. It accelerated the implementation of our intelligence exchange solution and they deferred the implementation of the SabreSonic reservation system upgrade beyond 2017.

Our objective is to always focus on the long-term success of our customers and how our technology can enable their strategy. Air Berlin and Copa are two examples of Sabre aligning with customers on the strategic priorities and ordering technology solutions to line up with that strategic execution.

At hospitality solutions we had a great quarter as we continue to extend our global leadership position with over 36,000 properties around the world now leveraging our technology in continued strong commercial and revenue growth. Our new wins in the quarter included midsize hoteliers Amora hotels and Hospitality International. We had a strong quarter of new hospitality solutions implementation including Loews hotels, the York hotel worldwide group and at our largest luxury hotel partner.

In the enterprise phase we worked with Marriott to develop a new distribution and booking platform for wholesalers and tour operators. We did this work in short order and we've made Marriott more efficient distributing its inventory to a broader leisure segment. Importantly, this demonstrates our ability to bring solutions to market quickly even for the world's largest hoteliers. These are just a few of the proof points behind our momentum and confidence in the continued growth of hospitality solutions.

Sabre travel network had third-quarter air bookings growth of 3% and we continued growth in every region in the world. Non-air bookings declined a bit driven by a continued softness in corporate travel and in comparison to last year's 12% growth in the quarter. Our overall bookings increase was 2.4%. Growth was strongest in Asia-Pacific at 7% and modest growth in North America and EMEA. And finally, Latin America saw a small uptick for the second quarter in a row after a few years of decline.

The Sabre at-work space continues to great feedback from hundreds of customers that have been using the beta version. Our best-in-class design, business intelligence and efficiency of the workflow including the ease of booking ancillary content are tracking and how airlines plan to sell in the future. Airlines are realizing that the next leg of ancillary sales growth will come from increasing sales through intermediary channels and our development work is completely aligned with this objective. Initiatives like these will increase the value delivered to airlines and travel agencies as buying and selling continues to evolve.

Sabre at-work space is critical to the implementation of our large conversion in Asia-Pacific that will drive over four points of incremental sharing in APAC and 1 point of growth globally beginning in the second-half of 2017. And Travel Network had an excellent sales quarter with new agency wins in every region that total over $2 million annual bookings and new business. Strong sales, EMEA conversions, continued excellent execution in Asia-Pacific and what looks like a strengthening macro environment give us confidence that we'll close out the year strong in Travel Network.

And we're relentlessly focused on innovation that will shape the future of the travel industry. Over the course of the year, that has been defined with consistent strength across solutions with year-to-date growth of over 17% including over 40% year-to-date growth in hospitality solutions. In Travel Network, we continue to outpace the market and year-to-date our global share is up 70 basis points.

Although bookings growth slowed through the summer months, our third-quarter relative business performance was strong with global share gains and continued growth in all regions. The fundamentals of our business are rock solid, and when coupled with some improvement in the macro environment, we believe we are set up well to deliver an excellent fourth-quarter step off into 2017.

With that, I will turn the call over to Rick for some additional commentary on the quarter and our forward outlook.

Thank you Tom. Our third-quarter results reflect airline and hospitality solutions continuing to build on a track record of strong growth as well as Travel Network growth that was ahead of the overall GDS industry. Airline and hospitality solutions revenue growth accelerated to 20% to $262 million which puts us at $753 million through three quarters, well on pace to hit more than $1 billion in revenue this year, one of the largest and most profitable vertical software businesses in the world.

Contributing to the rise in revenue in quarter was nearly 45% growth in hospitality solutions. In Airline Solutions, SabreSonic growth of 20% was driven by the sharp increase in SabreSonic passengers boarded. Our AirCentre and AirVision portfolios also delivered robust growth with revenue from these solutions increasing in the mid-teens.

Airline and hospitality solutions EBITDA increased 11% to $95 million, resulting in a Q3 EBITDA margin of 36.2% for the segment largely consistent with our expectations for margins to be about flat with the Q2 levels. 206 million passengers were boarded through our SabreSonic reservation system in the quarter, a 45% increase year over year. New implementations contributed to the majority of this increase. However, passengers-boarded growth on a consistent-carrier business was a very strong 9% up in the quarter as well.

Turning to Travel Network. Results were impacted by modestly slower market growth than expected and the previously disclosed insolvency filing of the European OTA customer. In the quarter, we took a non-cash write-off of upfront incentives paid in earlier periods. This combined with the lost bookings attributable to this customer in the quarter had the following impact to Travel Network and Sabre overall.

Revenue was impacted by an estimated $3 million due to lost bookings by the agency. EBITDA was impacted by estimated $9 million, $7 million of which was from the write-off of upfront incentives and the remainder from lost bookings. EPS was lower by approximately $0.02, EMEA bookings growth was 2 points lower and global bookings growth was impacted by approximately 35 basis points. All of our reported GAAP and adjusted results for the quarter fully reflect the impacts of the Unister insolvency.

Inclusive of the effect of these headwinds, Travel Network revenue increased 2.3% to $582 million driven by bookings growth across all regions and a 1% increase in average booking fee. Offset by a $3 million decline in subscriber and other revenue. All included, Travel Network EBITDA declined 4.9% to $220 million in the quarter.

Travel Network's revenue growth was supported by a total bookings increase of 2.4% in the quarter to $126 million. Globally our share of GDS air bookings increased both sequentially and year on year to 37.3% for the quarter. Year to date, our share is 70 basis points higher as Tom mentioned at sits at 37.2% globally.

On a regional basis, our decision to acquire Abacus was again validated as APAC was our strongest region with third-quarter bookings growth of 6.8%. North America bookings increased 1.6% in the quarter, driven by growth in leisure channels while corporate channels remained relatively flat. In EMEA, bookings growth was 1%. Excluding the impact from the insolvent agency, growth was consistent with the second quarter and the overall market at about 3%.

Latin America bookings remained moderately positive in the quarter increasing 0.6%. We expect new agency conversions and a modestly improving environment to drive accelerated bookings growth in Q4.

Moving to our overall income statements which includes all the impacts of the insolvency we discussed, revenue $839 million, an increase of 7% year on year. Adjusted gross profit of $345 million, down $2 million. Total adjusted EBITDA declined 2% to $238 million, depreciation and amortization stepped up in the quarter reflecting the impact of increased capital investment in the business resulting in adjusted operating income of $151 million. That's 14% below year-ago results. Below the line, the benefits of a lower interest expense and a decline in our tax rate contributed to adjusted net income of $75 million and EPS of $0.27.

Moving to the balance sheet and cash flow, quarter-end total net debt and leverage remain steady at $3.2 billion and 3.1 times trailing 12-months EBITDA respectively. For the quarter, we generated $79 million of free cash flow, a step up from our first-half run rate. Year to date we have generated $178 million of free cash flow. Q3 total adjusted CapEx which is the sum of GAAP, FX and capitalized implementation costs was $111 million. Capitalized implementation costs were $21 million of this amount.

Looking ahead to the fourth quarter, on a consolidated basis we expect an acceleration from the third-quarter growth across all relevant metrics including revenue, adjusted EBITDA, adjusted net income, EPS and free cash flow. We expect strong topline growth in airline hospitality solutions revenue to continue in Q4 with full-year growth approaching 18%, resulting in full-year revenue of over $1 billion.

Q4 solutions EBITDA margins are expected to step up, reflecting the anniversary of the negative overlap with the American Airlines service contract that expired at the end of Q3 2015, and incremental contribution from Alitalia, Wyndham and other implementations; partially offset by increased technology shift. With a shift of timing of the Air Berlin implementation and the October technology disruption impact of a few million dollars, full-year solutions EBITDA margins are now expected to be relatively consistent with 2015 levels, with expectations for margin expansion to the very high 30s in 2017 consistent with our medium-term goals.

In Travel Network, the global booking environment is showing some signs of improvement for business travel. We expect new agency conversions to drive accelerated bookings growth in the fourth quarter, resulting in expected Travel Network revenue growth for the quarter of between 4% and 5% and full-year revenue growth of more than 12%. We expect full-year EBITDA margins of about 40% or slightly better, both fully reflecting the realized expected impact of the agency insolvency.

Putting these together, we expect Sabre consolidated fourth-quarter revenue growth of between 8% and 12% with EBITDA growth between 13% and 19% leading to strong growth in adjusted net income and adjusted EPS. Reflecting this, for the full year we now expect total revenues of between $3.365 billion and $3.395 billion. Adjusted EBITDA for the year is expected to be between $1.055 million and $1.07 million with full-year EPS of $1.34 to $1.40.

Looking at free cash flow, we reported $178 million year to date; we now expect full-year free cash flow to approach $360 million which simply reflects the flow-through of our lower-than-expected EBITDA in quarter three. The planned and expected material step-up of free cash flow in the fourth quarter is intact. There are a number of operative sustainable drivers for this step-up.

But I would like to remind you of the large one that merits repeating. In 2015, we reworked our multiyear contract for technology hosting. It provides for an annual ongoing savings credit that only triggers and becomes realizable i.e. bookable to the cash-flow statement once certain usage thresholds are hit in 2016 and 2017.

Based on year-to-date usage in 2016, we have reached those thresholds resulting in approximately $55 million of payments that we will not be making in the fourth quarter. Hence the cash flow benefit in the fourth quarter.

With that, I will turn the call back over to Tom.

Thank you Rick, for the past several years, we've talked about this business being resilient and it is. While third quarter did not meet our high standards, our Company is very well-positioned to continue on delivering innovative technologies for the $7 trillion travel industry. We expect that innovation over time will make up for third-term macro weaknesses as we continue to broaden product lines to gain share of wallet and increase our customer base. And we expect to finish the year with a strong fourth-quarter and with momentum continuing into 2017 and over the medium term.

Thank you for joining us on the call today and with that I will ask Tracy to open the call for questions. Tracy?

(Operator Instructions)

James Schneider, Goldman Sachs

Regarding the Travel Network results in the quarter, your gross margins west are down quite considerably. I was wondering if you could give us a little bit of color around the factors beyond Unister that drove that gross-margin weakness.

And them, more importantly, going into Q4, your guidance implied is a little bit ahead of the street, so what is giving you confidence that the Travel Network segment in particular is stepping up and that's going to be solid enough throughout the remainder of the year to drive that step-up in revenue and recovery?

Jim, this is Tom, let me talk about the confidence going into the fourth quarter and we will go back to Rick who will talk a little bit about some of the ins and outs in the third quarter. Look we have had very good sales success as I mentioned on the call. We have great visibility into implementations across EMEA that will get us back to some share growth which I talked about in our second-quarter call. I said that later in the year we would be implementing some new business in Europe after having a period where the sales and the implementation cycle just didn't line up quarter to quarter.

So we will see implementations in new agencies. We had strong sales again as I mentioned about, 2 million bookings that we sold in the quarter; and we've seen a measurable pickup in bookings as we got into the month of October. And we think much of that is coming from the multinationals which has been a sleepy part of the market for most of the year so and it's a place that we had a lot of strength.

So we fully expect that those macro tailwinds, along with the sales strength that we have had and again a year-over-year step-up in market share of about 70 basis points. And then finally, our execution in Asia-Pacific post the Abacus acquisition has been excellent and that's the fastest-growing region, higher than it's been all year long here in the last quarter. So all of that gives us confidence that fourth quarter and again that step-off in 2017 for Travel Network will look a lot different than it has in the second and third quarter.

Yes, Jim it's Rick, on gross margin, they had a little over two points down year over year as we said in growth margin. Largely as expected talked about that, how in the back half we would have a step down compared to the first half, we've been talking about that in each of the quarters. We saw that in the quarter and it does reflect our expectation, it reflects all of the big agency renewals that we went through and successfully got that and, as I said in our guidance, we expect to be overall for the year at the EBITDA level at 40%-plus for the year which is spot on what we talked about coming in, so we have managed from the revenue and the gross margin to the EBITDA line consistently and see the setup working well here in Q3 and Q4 in that regard.

That is helpful thanks. Maybe you can provide us an update on the solutions pipeline of potential wins. I think you referenced a couple of times that you expect some potential decisions if not this quarter then early next quarter. Maybe give us the status of those, that pipeline and where you think anything is getting close to fruition either on the airline or hospitality side?

Jim I think, what I said in my remarks today, was that in hospitality we fully expect to see some movement in the enterprise segment and we expect to have that happen before our next quarterly call. I have not given any specific timing on any of the airline decisions. I said before that we still see that $650 million passenger-boarded opportunity out there for a number of deals that are either early in RFPs or further along. But it is very different to speculate on when airlines will make decisions and I've not speculated on that in the past. I've just said that some of that $650 million passenger-boarded pipeline has probably moved out a little bit from when we first started talking about it which was probably 18 months ago or so when we first started talking about that third-party report and using to validate what we see at the marketplace pipeline.

So we expect to see wins in the enterprise segment and hospitality. We have a very active pipeline in the Airline Solutions side, particularly in the reservations business. But as I mentioned, and Rick reiterated it, our AirCentre and AirVision portfolio for the last two quarters has been at double-digit growth rates; that's higher than it has historically been. That's a reflection of the investments we've made in that portfolio and as we roll down the solutions for next revision in crew and in revenue management with our new Revenue Optimizer product we expect that type of strong growth to continue in that part of the portfolio.

That is helpful thanks if I can sneak one more in. Maybe I don't know if either of you can comment on this, but maybe just give us the status of the CEO search process and how that is progressing whether we can expect something before the end of the year?

That is a timeline that the board has set. I have full confidence in our board and full confidence in the search committee. I think things are going as we had anticipated and hopefully we'll stay on timeline and communicate it.

Thank you.

Brian Essex, Morgan Stanley

Good morning and thank you for taking the question. I was wondering, first of all, maybe if we could focus a little bit more on the cash-flow bridge in Q4 2016 or ramping outside of the Hewlett-Packard benefit. What are the items that would help you reconcile and give us or at least give investors confidence that you can hit that?

Jim, there's a couple things. As I mentioned, I mentioned that big $55 million one. There's another bucket that's really in our upfront solutions fees, implementations. Those are typical; they're reoccurring. They happen every year, but they do come a little bit lumpy.

In the fourth quarter, we expect a nice chunk of $20 million or so coming in from there. And then the third bucket is made up of various working capital items there which combined, we're looking at about $30 million of incremental free cash flow in Q4.

With our plans, it's aligned with that; so those are the three buckets, the $55 million, $20 million and $30 million to build that up. And again, the implementation fees are a normal part of the business. And the working capital items, the reason I'm going to call out the hosting again as I did after the second quarter is, the unique nature of that contract and how gives us that benefit in 2016 and 2017, but it's backend in each of the years because you have to show that you met certain volume.

Got it. If we can follow on that, you previously talked about a $500 million free cash flow level in FY17 and I know you're probably not in a position to speak specifically to that, but has anything fundamentally changed in the operations of the business that would change your view on that magnitude of infection in cash flow next year?

No. We are not giving guidance on any metric for FY17, but we are intact that we've got the strong trajectory across the P&L and the cash-flow metric stepping into FY17 to support the basic drivers of the business which both Tom and I have hit on here this morning. In 2016, we expect that we will have well over a $100 million increase from 2015 because we've added to the drivers that we talked about. And again, with the strong really great growth in solutions, across the airline res AirCentre, AirVision and particularly hospitality solutions freezing margin there; those are very well intact.

In Travel Network, again we're showing consistent, but we're taking market share. We've locked in some share with a big agency that will come and support that later in 2017. And we are operating at the margins that we expected coming out of the year, with having gone through a lot of agency renewals, so I think all of those drivers remain a net intact. The adjustment here in 2016 is the flow-through from the shortfall in EBITDA in Q3.

Got it. Maybe I can just sneak one more in, on your October booking strength that you mentioned, now we're past the end of the month. What are the key indicators that you look at and how much visibility do you have into the strength as well as activity into the last two months of the quarter, just to give us the confidence that you are leaning on or visibility into what you are leaning on for comp in the fourth quarter?

Yes Brian. We get very good visibility in months, so there is a little bit of danger in riding the roller coaster there at daily booking reports. But we look hard at it at weekly; and again, we just saw good strength across the board in October so far, well, as we closed out October. And again, we think, and this is just based on qualitative discussions that we've had with our customers, we think some of that strength is coming from the multinational market, which as I said, has been a -- it's a place where we have a very premium share of the market and it's a place that for three quarters of the year we have seen bookings down year over year and not up.

So, a pretty sluggish part of the market where we're seeing our returns strengthen in a place where we have a bulk of the share. So that we have good visibility to; as far as forward-looking bookings I do not want to speculate on where we will go. I want to just say that the tailwinds out of October give us a lot of confidence. And as Rick and I both mentioned, we also saw stronger than the trailing two quarters strength out of Asia Pacific again validating the good work that our team is doing there also the validating the logic behind the Abacus acquisition.

Obviously given that North America is our biggest market, our confidence about seeing some uptick is a measurement in North America specifically; it is doing a bit better than what it-- pre-reporting

That is helpful; thank you guys I appreciate it.

Abhey Lamba, Mizuho Securities Co.

Rick, I know you're not giving guidance for 2017, but on a qualitative basis, how should we think of the puts and takes for the year? And also just revisiting cash cushion on free cash flows for 2017, this $55 million of benefit in Q4 from working capital items, does it create any headwind for 2017 free cash flows? Should we be adjusting our expectations accordingly?

The $55 million related to the technology credit, it does not create any substantial headwinds as we had some similar in next year. The other working capital items are normal. I do not see anything particularly different there in the fourth quarter versus fourth quarter out in 2017 as I mentioned before. So the drivers remain intact there.

And again, shaping up as we've said with Q4 and the visibility to that in the solutions business, continuing strength there and across the different portfolio solutions as the benefit of those. And even with a bit of the delay in a couple of the implementations, as Tom mentioned, for instance on airline solutions, we see economics around the Air Berlin restructuring largely similar to what we had expected if they had implemented still this year at the full size of the previous expectation.

So we protected ourselves there. That is something that you should be very much aware of in Copa, but we sold then some other solutions given that they chose to delay because of some of their strategic priorities, their reservations cutover, so we do not have that in 2017, but we do get some revenue benefit out there.

So that is how you -- we protect the shape of that and we're growing at super strong rates in hospitality both on an organic basis; we're realizing the benefit expected in full from a trust acquisition. And, as Tom mentioned, our pipeline on enterprise is in very good shape for the reasons that we talked a lot about over the last couple of quarters; they're the need of those customers and our ability. It's a different marketplace there.

I think those drivers are intact. And Travel Network again, we're consistently taking share; we're taking 70 basis points this year. All regions grew in the third quarter. And we just talked about some of the drivers for the reason we are seeing a little bit of pickup in the overall market and our positions specifically in Q4. So those are the drivers as we go up in 2017.

I just want to reiterate that across the three businesses, we expect hospitality to hit in those strong growth rates and our sales success. In Airline Solutions, besides the double-digit growth we're seeing in AirCentre and AirVision, we do have Air Berlin, AirSerbia and Latam keyed up for implementation in 2017. And Latam, just as a reminder, Pan's side of Latam is a larger airline than our current footprint with the Latin side of the airline flaunts the Brazilian side which is the Tam piece, as it was an airline of significant size that we'll land over the course of the year.

The last piece is the Travel Network, the deal that we have been talking about that moves basically a point of global market shares as the back half of 2017 is arguably one of the bigger deals of this year that is out for bid. And so we have big chunks of business coming on all three businesses which builds off kind of our normal day-to-day selling, which as I mentioned, Travel Network, 2 million bookings this quarter. So we feel really good about the commercial side of the business and our ability to continues to win business to grow all three businesses which is at the end of the day a very big driver of cash flow as well.

Got it, thank you.

(Operator Instructions)

David, Evercore ISI

Could you update us on any impacts you are seeing from Lufthansa's initiation about 1 year ago of a GES surcharge fee? And any conversations you've had with any other airlines in particular in Europe about their thoughts on the subject?

Yes I think that -- I've said this before David, this is Tom. As you look at our results, our results reflect some revenue uptick from that decision by Lufthansa as do some of our competitiors. We see no meaningful impact of business overall except for that revenue uptick. And I think Lufthansa's results, as you comp them to other airlines across Europe, speak for themselves and it doesn't seem like that would be a wise strategy and we're not hearing from any of our airline customers across Europe that they'd like to follow what looks like a bad strategy.

Understood. As a quick follow-up, can you discuss some of your initiatives to implement NDC or new distribution capability which is an important program set forth by IOT and the major airlines?

Yes. I think, first of all, we are going to put ourselves in a position to deliver our NDC capabilities, but we're going to go at a pace our customers want to go at. We were first to market with the seats product for American Airlines using the NDC standard. On the flip side, just to give an example, we were several years ahead of the industry on a similar program to sell paid seats up at United using a different technology because the NDC standard was not in place.

We're going to innovate at a pace that's consistent with what our customers say, not consistent necessarily with what an industry standard-setting organization will say as that is not where innovation generally comes from; I have mentioned that before. That, again, we will be ready to implementing in a standard format; we think that it is better for us and better for the industry. The airline industry needs to adopt the standard and they have been slow to do so. We continue to innovate both inside the standard and around the standard based on our customers' need.

Will you have the opportunity to monetize the services you provide in support of NDC?

I think it depends on what the mix of products and services airline sell. In some cases, it will just drive more efficiency. Some of the NDC capabilities will be around servicing customers not selling incremental things to customers. But I think as airlines-- if airlines increase the mix of products and services they sell, whether that is through NDC or any other capability that we deliver, we will look to monetize it. But, that is not revenue that we have sitting out in our -- in the current 3-year or multi-year guidance that we have discussed. That does not assume a big pickup in ancillary type revenues found at Sabre, but we do see it as a long-term revenue opportunity.

But again, as I said before, airlines need to get more revenue from the intermediated channels. The bulk of the $60 billion or so that they are talking about as ancillary revenues today, come from things that either bought at the airport, mostly bags, or things that are going through the direct channel, mostly seats. Or the sale of miles, which in our view, is not really new ancillary sales; it's something airlines have always done and that's really part of their loyalty business, not part of their core airline business.

I think those are the three buckets and they've more or less saturated the direct channel ancillaries in those categories and we think they have to sell more; and I think our conversations with airlines validate that they want to sell more through the intermediary channel. That's both a technology issue as well as product mix issue and a sales compensation issue, people who are selling the product for them.

This is Rick, the key 10 of our strategy in Travel Network is articulated by Shawn Menke at the Investor Day, and I'll elaborate it. My sense there is to enable that end to end and to help the airlines do that, that's both technologically, it's both also lining up the relative incentives for people to do that in the intermediated channel, the agencies, the airlines, and Travel Network as the GDS. So it's a holistic strategy to address that issue for the benefits of the airlines, so it's definitely an option for us, it's not in the GAAP, the 2017 numbers.

Let me just -- because I think it gets a lot of delays from IOTA and the airline industry. But to be clear, to date, by the latest data I have suggests that IOTA has certified one product at one airline as being NDC compliant. That is not reflective of an industry that is adopting a standard. And it's also -- it is reflective of typical standard-setting organizations which they can't go at this by certifying products one by one across the industry; it is kind of a meaningless metric. So again, this comes back to innovation and how airlines choose to sell their product and enabling them to do that; we think we're better at that than anybody in the world both in the direct channel as well as indirect channel.

Understood, thank you very much.

Ashish Sabadra, Deutsche Bank

My question was regarding the solutions margin. Rick, I believe you talked about high 30% margins for Solution in 2017. Can you help us talk about the puts and takes there? It looks like there are a lot of airlines going live so we should be positive but then you also have Southwest's deconversion, can you just help us true up on how much of a impact will there be from the Southwest?

Yes, first thanks Ashish, the solutions margin for the year will be largely kind of where we were at previous year, a little bit above that. In fourth quarter, we will be up around 40% or more. So you see how we get there for the full year; and again in 2017 based on all things considered, the implementations that we have already done just recently, the ones we have visibility to and the Southwest roll off by the middle of the year. We continue to believe we will be at high 30%s, so higher than this year next year in the solutions margin.

Remember you're powering that through rapidly increasing in the smaller hospitality side. And then consistent and visibility on the airlines with the reservations that's implemented and accounting for the Southwest rollover. We don't have complete visibility being notified yet by Southwest of exactly which --what month they will cut over, but you have heard their statements that again, they are expecting somewhere in the first half of the year and that is what we are expecting.

Thank you for the color. And then on the organic PB growth, that was really strong in the quarter, 9%, can you comment on what is driving that strong PB growth in the solutions business?

Yes, just going with air; we have got the customers and the mix that are growing faster than the market. Talk about the 9% as I mentioned, organic in Q3 was just terrific. LionAir has grown more than 30%; Vietnam airline more than 20%.

Philippines airline, 20%, again that might surprise some people. Aeromexico is growing in double digits, long double digits; JetBlue right around the average 9%. So hopefully that gives you some color there.

Really strong, it is a big world and things are picking up and even in Latin America again we have seen through bookings a return to some growth. We have seen some markets like Brazil and Colombia ticking up, so we are really excited too when we get to implement Tam airlines in 2017 which by themselves, as Tom referenced, is a very big airline, I think around, approaching 40 million passengers boarded that will be incremental. So that will layer on another one and then we expect to have organic growth off of them in a market that looks as if, and I am knocking on wood, this has found bottom and is starting to show a little bit of growth again; so that bodes well over the medium-term

That is very helpful. One final question quickly on the hospitality side. What was the organic growth there or what is the contribution from trust acquisition?

Trust was $11 million of revenue as we expected, so spot on. We had organic growth of -- excuse me, had total growth of 45% in the quarter; trust was $11 million of revenue.

Okay, thanks.

John King, Bank of America

Good morning, thanks for taking the questions. Just on a couple to start off on the Travel Network side if I can.

Firstly, can you comment around the pricing trends that you are seeing, obviously you have had some fluctuation in your implied bookings price. In the first three quarters, how should we think about that for Q4 and beyond?

Related to that, what kind of mix are you seeing in terms of the growth in corporate versus leisure? I guess you're calling out some softness in North American corporate. Are you seeing a greater picture in the leisure market in North America and again how might we think about trending into Q4?

I think I've covered the latter part of that question John. But just to reiterate, we saw softness in the corporate market year to date. That's to the year to date end of third quarter.

Coming out of the third quarter we have seen some strength in the North America corporate market that we hadn't seen earlier in the year. And we think it will have a meaningful impact going forward; so on the share mix we have seen good strength there.

Yes and on the booking fee, we have had a booking-fee growth of about 1% in the quarter, John. That was as we kind of had expected and communicated; that gives us booking-fee growth of 3% over the first half of they year -- or 1% in Q3, 3% over the first half of the year. And that was accentuated by one quarter we had 4%; we said don't extrapolate that. So that gets us right back online to where we expect both booking fee an incentive to grow at that very low single-digit offset with 3% to 4%, so on track there.

And then the follow-up was going to be around the balance sheet. Rick, I appreciate you've got some free cash flow to collect in Q4, but with that in mind, you should be towards the low end of your typical corridor on leverage. I think you already are in fact.

So I guess you have always talked both on M&A and some potential for buybacks, is that still -- is the picture still looking pretty similar there? Or are you learning one way or the other in terms of the usage of cash?

Absolute in tech John, yes we are at 3.1. That's at the bottom end of our 3 to 3.5. We said our bias is to the bottom end of that and a bit below; you can't hit it just exactly every day, so that reminds intact and we are well set up for that.

On M&A, we haven't had any larger acquisitions here recently, so right now as I sit here and look, it is very much then in our levers of use of that free cash flow is really towards the debt reduction to that 3 or slightly below and we have some work in terms of working our debt capital structure that we are going to continue on as you have seen. And return through buybacks, to at a minimum in 2017, offset dilution, but we have the ability to do additional buybacks at any time above and beyond that with where we are in our capital structure. Our cash on hand and our cash flow that is coming in.

Got it, thanks.

Jason Kupferberg, Jefferies.

Good morning, this is Ryan Cary on for Jason. First, with only one quarter left in 2016, I am a little surprised at how wide the EPS range is for the year. Is there any reason you didn't tighten the bottom line guide? It seems like if we take the third-quarter's results and apply to full year, this implies kind of middle of the range. Is that generally the right way to be thinking about this?

To begin with, our ranges are pretty darn tight for a company of this size and there is no change there, so there is nothing to read in or out of that. And on our adjusted EPS for the full year as I said, $1.34 to $1.40, and I think gave all the drivers of that in the buildup, so not really anything to add what I said or what is on the charts there.

Okay, and moving to EMEA bookings, I'm trying to get a sense of how you think this should trend going forward as even ex-Unister growth of just over 3% still seems pretty lackluster. I know you called out global market share improved, but looking specifically at kind of the EMEA region, did share shift have any impact on growth in EMEA for the quarter?

Well in EMEA, just to be clear, 3% is not lackluster; it is right on top of the market. We've outgrown the market up until second quarter. We talked about that we had a step-down because we had not implemented any new agencies in the period prior to the second quarter.

And again in third quarter, we are about 3% which is right on top of the market growth number. And we have implementations that happen in this quarter that will tick up okay in the fourth quarter. So we will continue to outgrow Europe as we have, but on the third quarter number, it's right on top of market growth

Yes the fourth quarter of having a good performance and outperformance.

Okay, so we should expect in fourth quarter the outperformance will continue to expand?

Correct.

Thank you so much for taking my questions.

Jed Kelly, Oppenheimer & Co.

Thanks for taking my question. With the recent share gains made in Travel Network, do you expect any change in your long-term margin outlook of 40% for that segment? Also, are you expecting corporate travel trends to improve after the election?

Jed, we do not expect any change in the margins. I don't want to speculate on-- all of the headlines today are pointing to the election. We are not smart enough to figure that one out.

The corporate travel trends are positive in front of the election as it relates to the month of October; that is the best indicator that there is going to be a little more growth there and we feel confident that there's wind, that we have some tailwinds as it relates to multinational business in North America where again, we had the premium share of the market much higher than our natural share of the market.

Okay, can you call out how much you were expecting Unister to contribute to revenue and EBITDA in 2017?

Well, we called out the impact of it quite explicitly; we do not have anything to add to that.

And on 2017, we're still working on what the shape of 2017 will look like, but we obviously, we expect in some ways to pick up.

Thank you for taking my questions.

We will go next to Matthew Brown, Cowen and Company.

I'm curious if you could talk out the additional investments you made during the quarter and the rationale, the expected benefits? Was this opportunistic or due to competitive pressures, regulatory or anything like that?

This is Tom. We did cover a little bit number, adjusting where we like. But it's a couple of things, one we called specifically, we called securities out specifically. As you know, as everyone knows, across the board the security environment is one that the whole technology world is at times playing catch-up with. We cannot afford to be playing catch up, so we're trying to stay ahead of the market. Our customers rely on us for the security layers around a number of their critical systems, so we think those investments always make sense.

We spent a bit more than we planned, but it's around beefing up an environment that over time, we think we will get paid for; and the service side of software is a service. But initially, we have to invest to keep our customers confident that we are ahead of the market.

We also, because of the restructuring of the Air Berlin and the COPA agreements, particularly the Air Berlin agreement, we incurred some expenses that we had to take in a period, but that will not give us benefit anytime soon. As Rick mentioned, we held the economics together for the Air Berlin in general for 2016, but that is a different mix of business than we planned.

Matthew, this is Rick, and so the combination of those both the incremental and investment in security and stability and the work around working with Air Berlin and Copa, that account team's financial, legal, sales, all of that was in the high-single digit going into the quarter.

Okay, thanks. You mentioned you were very successful signing new agencies during the quarter, just wondering what was mostly driving that? Is that some additional investments to sales?

We've had a long history of growing share; we've said that we feel like we can grow share in every market around the world. We-- our commercial approach in Asia-Pacific is proving -- is going to prove that out, has already resulted in us landing again a largest travel retailer chunk of business that was available in 2016. We've continued to sell in EMEA. We saw 2 million bookings of these sales coming that will come on over the next couple of months.

Okay, perfect, thanks very much.

Brad Erickson, Pacific Crest Securities.

I just have one quick follow-up here. You called out, on the RFP pipeline for air solutions, I think you said, some of which may have pushed out a bit. Can you talk a bit about what is going there exactly, are sales cycle simply lengthening or some other new dynamic that is causing that to occur?

I do not think there's, Brad, any new dynamic. These deals are choppy. Airlines, they're long processes generally. Airlines need to dedicate a lot of resource toward them. And they have to prioritize in a way that allows them to chunk through them quickly. And we've just seen, in some cases, we've see RFPs delayed as it pertains to some of the sales processes just going along.

It is not unusual, I don't think there's any new mix of issues in the business. I think it's really just an issue of airlines and us working hard to drive airlines' decisions. But frankly, on these big deals, they're going to decide when they decide. We just have to keep the sales process going until they do; there is nothing new going on there.

The great thing is that we sell a lot of other mission-critical software solutions to all of those airlines. And airlines that are not our reservations' customers. Thanks Brad.

Thanks.

There are no other questions in the queue at this time I will turn the call back over to Tom Klein for closing remarks.

Thanks again for joining the call this morning. We're excited about the trajectory of the business and we appreciate your continued support. Thanks everyone.

This does conclude today's conference. We thank you for your participation; you may now disconnect.